Law: Income Tax Ordinance, 1979

Section: 65

Income tax----Jurisdiction to issue notice (under S. 65, Income-tax Ordinance, 1979)-Conditions for-Held, two distinct conditions must be satisfied before Income-tax Officer could assume jurisdiction to issue notice ­Firstly, reasons to believe that income of assessee had escaped assessment and secondly that such escapement was by reason of omission or failure on part of assessee to disclose fully and truly all material facts necessary for his assessment if either of these conditions not fulfilled-Notice issued by I: T. O., held, would be without jurisdiction-Belief, held further, must be based on reasons which are relevant and material and must not be arbitrary or irrational. JUDGMENT BHAGWATI, J. This appeal by certificate is directed against an order passed by a Division Bench of the High Court of Calcutta allowing an appeal against a decision of a Single Judge which quashed and set aside a notice dated 28th March, 1968 issued by the Income-tax Officer under section 148 of the Indian Income-tax Act, 1961 seeking to reopen for the assessment of the assessee for the assessment year 1959-60. The facts giving rise to the appeal are a little important and they may be briefly stated as follows 2. Prior to March, 1947, one Deo Datt Sharma carried on business in Delhi in the name of Sharma Trading Company. The business was quite a prosperous one and the record shows that Deo Datt Sharma was making an average profit of about Rs. 36,000 per year. In March, 1947, the assessee was incorporated as a private limited company with Ganga Saran Sharma as its managing director and it took over the business of Sharma Trading Company as a going concern in consideration of allotment of 1703 shares in the share capital of the assessee to Deo Datt Sharma. The share capital of the assessee consisted of 8,5.00 shares out of which 1703 shares were allotted to Deo Datt Sharma, 5 shares were held by Ganga Saran Sharma and 3,500 shares, by a company called Narendra Tranding Company controlled by Ganga Saran Sharma and his wife. It may be pointed out at the stage that Deo Datt Sharma was the brother-in-law of Ganga Saran Sharma. When the business of Deo Datt Sharma was taken over by the…

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